Sales were only half of initial forecasts and though they were expected to double this year, pricing would be significantly lower than expected.
The lactoferrin plant was one of Synlait’s key growth projects, as was the third large-scale dryer now being commissioned to provide much greater capacity for the group.
Synlait reported an after-tax profit of $10.6 million for the year ended July 31, down from $19.6m a year earlier when its product-mix was in a pricing sweet spot.
The bottom line in the latest year also provided for a $2.3m foreign exchange loss, expected to be unwound in future years.
The directors said that with the $250m capital programme nearly complete, except for a butter plant that wasn’t a certainty to be built, earnings from this year on would be at levels not achieved before.
This outlook was well received, with Synlait shares rising 12c to $2.65 on the NZX afterwards.
Revenues for the latest year were down 25% to $448.1m, from $600m, reflecting the fall in dairy prices.
Directors had prioritised advanced and final payments to suppliers during the year to help them cope with the much lower milk prices, in what was expected to be the first of two very challenging years onfarm, chairman Graeme Milne said.
Synlait was forecasting a milk price of $5kg/MS for the 2016 season.
That was down from the initial forecast of $5.50 but higher than the average price of $4.54kg/MS paid out in 2014-15.
The 2015 payment had a $4.48 base price plus an average 6ckg/MS premium for seasonal and value-added supply.
More than half of the milk supplied to the Canterbury processor this season would attract a premium, including for A2 Platinum and grass-fed,value-add and winter and autumn supply, over the base price. It had 173 contracted suppliers.
In the annual report directors highlighted Synlait’s place in the milk universe, saying NZ produced 3% of the world’s milk and Synlait processed 3% of NZ’s milk.
The butter plant excepted, the capital expansion programme would be completed by the opening of the new quality testing laboratory in October.
The new dryer would allow Synlait to process up to 140,000 tonnes of product a year, up from about 90,000t now.
Synlait has borrowed heavily to fund the expansion, with $263.5m of borrowings at balance date making up 45% of total assets and total liabilities making up 70% of total assets. Along with achieving operational excellence from the new assets, debt reduction would be a priority over the next two years, Milne said.
Net finance costs for the latest year were $8.88m and were covered nearly three times by the earnings before interest and tax (Ebit) of $26.3m. The previous year the interest bill of $5.3m was covered six times by Ebit of $32.4m.
Operating cashflow fell to $16.37m from $58.67m.
Gross profits in the 2015 year were higher for both ingredients and nutritional products. Ingredients sales were 89,003t, from 88,052m/t a year earlier, and nutritionals 8800t, up from 5592t.
Synlait was achieving strong growth in infant formula sales, expected some growth in base powders and a three-fold increase in consumed-packaged product sales.
Moving customers up the value chain with infant formula, consumer-ready and nutritional products was a highlight of the year, managing director John Penno said.
Those products accounted for 55% of total powder volumes, a 15,000t increase on the 2014 levels.
Sales to multi-national customers increased by 59% to 412,779t and now made up 43% of total sales. Synlait was still targeting having 70% of sales being made to multi-nationals by the end of this year.
The geographic sales mix changed significantly in 2014-15 from a year earlier. Sales to China fell to 10% of the total overall, from 30% in 2014 as customers there bought less but the company also moved to get a wider spread of destinations.
Sales to the rest of Asia rose to 39% of the total from 31%. Middle East/Africa slipped from 30% to 26%. NZ sales rose to 17% from 6%, mostly for further manufacturing here for end-markets overseas, and rest of world went from 3% to 8%.
Synlait was now moving towards earning growth from the value-added strategy it had put in place, Penno said.
“We now have the customers, people, manufacturing capability and milk suppliers to deliver a significant increase in our overall volumes, particularly finished infant formula.”
The group would have one of the larges and highest specification infant formula production sites in the world.
Total sales this year were expected to be about 122,500t, up from 97,700t in 2015.
